Communicating Income-Shared Agreements

Better Future Forward is an organization jumpstarting a new, more equitable vision of financing higher education in the US.  Their Income-Shared Agreements model protects students by removing many of the risks associated with traditional student loans. This work was created for them, and is owned by them. 

The Problem 

Student loans make sense when tuition is low, jobs are plentiful, and wages are increasing. Unfortunately, that's not the world we live in anymore. We know students still need a college degree to succeed in the job market, but many are opting out because of the steep tuition costs. Many others who take on the loans end up drowning in debt with no end in sight. 

Better Future Forward was created to tackle this problem, by creating, funding, and promoting an alternative to student loans - Income-Shared Agreements. But in order to test the new model, student's need to understand it. So how do you explain a new financial offering to skeptical students? 


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What is an ISA?

Before explaining ISAs to students, it was important to understand exactly how this offering works. 

 

ISAs can come with varied details, but the core idea is that instead of paying back a set amount of money (plus interest) over an unknown amount of time, with an ISA you pay back for a set amount of time, an unknown amount of money, based on a percentage of your income as you're paying. Core to BFF's model, the ISA is set up as a fund, rather than individual bets on a student, meaning students are approved regardless of background, and money paid back goes directly to supporting more students.

For a more in depth description, see Better Future Forward's site. 

 

 

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Finding Students

In order to understand how best to explain ISAs, I first needed to find a diverse set of students to talk with. Luckily, Pittsburgh is home to a wide range of colleges supporting all types of students. I created a flyer, with an accompanying website survey, and posted flyers on 5 college campuses ranging from elite private schools to community colleges and vocational schools.  

The flyers attracted over 40 respondents, offering a diverse pool of students with completely varied experiences to talk with, including usually overlooked students like those at short vocational programs, and working adults at community college. While Better Future Forward has historically worked with students at 4-year traditional colleges, they believe their offering can be particularly helpful in these other settings as well, and were eager to have these students included in the research. 

 

My first round of interviews involved one-on-one conversations with students focused on understanding what they knew about their student loans, their feelings towards money and financial institutions, and how they envisioned an alternative model. During the interviews, I asked them to draw the student loan process as they understood it. Black holes of mystery and giant question marks, mixed with full understandings of interest and default,  showed the range of what students had learned before taking out loans. 

A senior at a four year college drew his uncertainty, including a metaphorical brick wall he's created to avoid thinking about the loans. 

A senior at a four year college drew his uncertainty, including a metaphorical brick wall he's created to avoid thinking about the loans. 

A sophomore had a strong understanding of how the system ideally worked, but drew a black hole of doubt for what happens if she can't pay.

A sophomore had a strong understanding of how the system ideally worked, but drew a black hole of doubt for what happens if she can't pay.

This adult student has been in school and working for the last 8 years. He understood and explained the nuance of both the student loan and default systems perfectly. 

This adult student has been in school and working for the last 8 years. He understood and explained the nuance of both the student loan and default systems perfectly. 

Overall, students were very excited about an alternative to student loans, but didn't fully understand the ISA model. When asked to explain it back to me, many projected their own desires onto the system - things like auto-withdrawal from their paycheck, early finishing dates, and a guaranteed lower amount overall. But they were eager to sign up for the program, telling me they hadn't seen anything like it. 

“This is just too good to be true. That’s not how higher ed works.”
— Charlotte, senior at UPitt
They’ll garnish your wages, up to 30%. And a lot of times the education isn’t enough to get you a job. I’ve seen it happen to friends.
— Kevon, student at CCAC
Loans aren’t scary. Interest is.
— Jamie, sophomore at Temple
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Hypotheses

After talking with 4 students, I had some hypotheses I wanted to test

1. It doesn't feel real without real numbers

It's hard to know if something is a good deal with out seeing the actual price. Students need to see what % they would pay, and what that actually translates to in order to be on board. 

2. Students will trust it more if they understand distributed risk

Students consistently said they were interested, but were skeptical that the program would exist for long. They believed the math wouldn't work out on Better Future Forward's side. 

3. Students need to understand how loans work before they can understand how ISAs are different

The education around student loans is minimal and varied. It's hard to talk about ISAs as an alternative if students don't understand how their loans work, and actively avoid learning until they're out of school. 

4. Loans are normalized, even if they're disliked

There's something to the sense that, while they're despised by most students, they also feel it's an expected norm. There is student camaraderie around dealing with loans, although little practical support exists. Does this normalization make it harder to overcome? 

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Prototypes

In order to test my hypotheses, I created multiple paper prototypes to try out various ways of communicating ISAs. My next set of interviews started with having students talk through the prototype and their thoughts before we dove into a conversation about loans. 

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Through the prototypes, iteration, and conversations, I came to the following key learnings for BFF going forward. 

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Key Learnings

Understanding the Concept

1. It's too good to be true, but that's not stopping them. 

Students understand the concept behind the fund. They just believe it's risky for BFF. But their skepticism of BFF's end wont stop them from taking the deal. 7 out 8 students asked on their own if and when the program would be available, despite concerns that the model wasn't sustainable. 

2. They love side by side comparisons. 

Repeatedly, students came back to a layout that let them understand all their options and scenarios in one place. They didn't want fancy graphs or illustrations, just clarity. 

3. They're trading unknown time for unknown money.

The clearest way of explaining the difference in the ISA approach, was to simplify it down to the following:

'When you take out a loan, you're paying back a set amount of money over an unknown amount of time. With an ISA, you're paying back for a set amount of time, an unknown amount of money.'

This simplification doesn't capture the nuance of both systems, but helps students understand the general model shift going on. For many students, the sense that they don't know when they'll ever pay off all their loans is the most terrifying part.

4. "I define affordable." 

Affordable is a term thrown around in government policies with set limits of what it means to be affordable. ISA's fall into this category because they adjust to income. Students, however, don't know or really care about these government guidelines. To them, they define what is affordable for their own situation. Staying away from this term and instead focusing on ideas like "stable" acknowledge student's right to define their needs for themselves. 

Understanding their outlook - Gen Z 

5. Pessimism and limited time

For traditional students who came of age during the 2008 financial crisis, all students have a sense that they won't find a job after college - even those at elite colleges in STEM fields. They also struggle to grasp just how long 10 years is, reasonably so given their age. By shifting the narrative from "some people struggle, and other succeed," to one more about, "We're betting on you in long run. You might struggle out of school, and our plan supports you until you find your footing,"  gives students a sense of relief. In turn, they express strong willingness to pay more when they do get on their feet. 

6. A pragmatic passion

Students loved the idea of picking a major based on their passion, not their paycheck. In a card sort, it was the most popular answer. However, when I dug in, all students said this program wouldn't change what they picked to major in, it just ease their fears.  The ISA taps in to what they think the world should be, even if it won't change how they show up in it now. 


Understanding Their Outlook - Adult Students

7. Debt is more necessary and more risky

What adult learners have in common is how varied their stories are and how unknown their path is. One student,  a mother recently laid off, is going back to school the same week her teenage son starts college. Another had been enrolled in community college for the last 7 years. These students are desperate for a program like this because, at the moment, so few things serve them. Debt at their age is more risky, with less time to pay it back. But for most, debt is the only way forward. 

8. Education through experience

One constant among adult students was their intense knowledge of the student loan system. Many explained advanced pieces of the system that many professionals in the policy world don't fully understand. Things like wage garnishment on defaults, bankruptcy laws, and more, have been learned through their own life experience and those close to them. Unlike teenage students, they're incredibly informed consumers. They're just lacking choices. 

 

Results

BFF has begun implementing the suggestions into their communication with students, changing how they explain the product to students. They've also begun using more qualitative research methods in understanding student needs. 

I did 8 one-on-one interviews with students we’ve funded. The feedback was really, really positive. I also used some of your tools for how to explain this better—particularly the one about framing in terms of time first—and it made a world of difference. I felt like I was able to explain the idea to students in about 20-30 seconds and actually have them get it whereas before it always felt like it was fuzzy in their minds.
— Kevin James, Founder and CEO of Better Future Forward

 

To see the full findings and suggestions, click here. Better Future Forward has generously made this information public in order to further their mission of making Income-Share Agreements available for more students in the US.